Outlook for the Economy and Print Markets

Beyond the Horizon: Key Dynamics Shaping Print Markets and Printers Over the Next Decade

By Ronnie H. Davis, Ph.D.

The full Beyond the Horizon report will be available in late May.

Executive Summary:Difficult Challenges

but Significant Opportunities

Printing, one of America’s oldest industries, faces many difficult challenges in its fourth century on this continent. However, it will remain an industry with a large economic footprint and continue to provide profitable opportunities for the thousands of printing firms and their suppliers that transition their businesses to adjust to the new dynamics shaping the industry over the next decade and beyond.

The objective of this report is not to predict the future but to offer various scenarios of the future paths of the economy and print markets and to explore the implications of these scenarios for the printing industry and printers. The methodology is limited to a focus on economic and market parameters already established and does not include technological assessments or unanticipated “wildcards” that may appear. The full report provides:

•An economic and market perspective—not a technological view of the future.

•Simulations and scenarios of potential trajectories—not predictions.

•A “what if” and “so what” exploration of the future.

•Parameters allowing printers to plot the transition to their future.

The print market space covered in this report includes the industry sectors and processes included in Printing Industries of America’s definition of “print.” This definition covers a fairly broad spectrum of print and ancillary services provided by the approximately 36,500 printing plants in the U.S. selling these services as their primary business and generating approximately $166 billion in annual revenues.

The major challenge to the industry is the slowing of total printing shipments (adjusted for inflation) over the next decade. Although nominal printing shipments (not adjusted for inflation) will most likely continue to increase, real or inflation adjusted industry shipments have most likely peaked for the foreseeable future and are projected to stabilize or decline by as much as 0.5 to 1 percent per year to 2020 before possibly beginning to grow again around 2025.

The major cause of this challenge is the projected decline of conventional ink-on-paper print which may decrease from 2 to 3 percent or so per year over the next 12 years. There are multiple reasons for the slowing of conventional print, but primarily it is the result of competition with other (non-print) media and the shifting of conventional print to digital print (in contrast there is also some increase in offset print volumes from the combination of offset and digital printing in some print jobs). Even with this decline, however, conventional print will remain large in an absolute sense. Currently, conventional ink-on-paper print comprises around 2/3 of total printing volume in the U.S. or approximately $111.6 billion in annual shipments. By 2020 this volume may decline to around $77 to $87 billion (in real terms—it should grow on a nominal basis) thus remaining a very large business segment.

On a more positive note, there is significant opportunity on the horizon since industry shipments of digital-based print and printers’ ancillary services are expected to grow at fairly healthy rates during the same period. In fact, much of the growth of digital print is a result of the digital displacement of offset printing. Digital print currently accounts for around 22 percent of printers’ shipments or about $36.7 billion. Depending on the scenarios explored in this report, this volume could grow between 2.5 and 3.5 percent per year. This growth is coming from two sources—conventional print moving to digital process and new business as a result of digital print’s capabilities in shorter run, versioning, and personalization. By 2020, the growth in digital print could add $13 to almost $20 billion to annual industry shipments.

The other opportunity area, printers’ ancillary services, currently accounts for approximately $18 billion or 11 percent of total industry annual shipments. By 2020 ancillary services may grow by $2 to $5 billion in additional shipments per year.

In fact, there is potential for total inflation adjusted printing shipments to begin growing

Again sometime around 2020 as the increases in digital print and ancillary services outweigh the decline in conventional printing shipments.

Another fact of life in the printing industry is the ongoing restructuring of mergers, acquisitions, and plant closings that has resulted in a decline in the number of U.S. printing plants from a high of over 54,000 in 1994 to around 36,500 at the end of 2008 or at a pace of 1,250 per year. The pace typically increases during periods of slower print markets and decreases during times of healthier print markets. For purposes of this report, we expect the number of printing plants in 2020 to hit approximately 27,000, a further decline of 9,500.

The surviving 27,000 printing plants will share a print market of around $157 billion or so in 2020. The transition, for those printers that survive the challenges, is a scenario of growth in total shipments, digital printing, ancillary services, and stable conventional printing shipments:

Typical surviving printer’s transition 2008­–2020:

20082020% %

annual sales--millionschangechange

2008-2020annual rate

Ink-on-paper $3.1$3.1--0

Digital$1.0$1.9+90%>5%

Ancillary$0.5$0.8+60%>3.5%

Total Sales$4.6$5.8+26%>2%

In a nominal or non-inflation adjusted basis, printers will see even more growth in their annual sales.

If this scenario holds, then the printing firms that make the transition to 2020 will have experienced a fairly healthy growth in inflation-adjusted shipments (just below the overall rate of expected economic growth) with their total shipments increasing from $4.6 million to $5.8 million. In particular, digital print (over 5 percent per year) and printers’ ancillary services (over 3.5 percent per year) should provide robust opportunities for these printers.

Our expectations for printer’s bottom-line financial performance is that the industry will remain an industry of haves and have nots. Generally, industry profitability should remain within the parameters of the last decade. Profit leaders (printers in the top 25 percent of profitability) will continue to make very attractive returns and attract investors and capital to the printing industry.

In 2020 the printing industry will still be very large and continue to rank among the country’s largest manufacturing industries. With 27,000 plants and around 850,000 employees, the printing industry will have a large economic footprint and continue to provide career opportunities and hire, on average, approximately 50,000 new employees annually.

It will also remain primarily a domestic-based industry. As Printing Industries of America’s recent report on global print markets concluded “total direct U.S. printing imports, which totaled over $4.9 billion n 2005 may grow to around 12–15 billion in 10 years or by 2015. This projection is based on a 10 percent growth rate which is above recent growth rates. This amount would probably comprise about 6–7 percent of total U.S. print consumption in 2015 given recent trends in overall growth.” The report further states “the bottom-line from these projections is that the vast majority of print consumed in the United States will continue to be produced in the United States barring some major unforeseen change in circumstances.”

The 27,000 or so printing firms that successfully transition over the next decade will be a diversified group in terms of size, ownership structure, and print market segment—small, medium and large; family owned and publicly owned; and specialized in various segments from labels and packaging to direct marketing to books, catalogs, publications, and many other niches. These evolving and adapting printers will be the ones that learn how to be “better differently” from the thousands of their competitors that do not make the cut and will have some common characteristics:

·Their plants will be “multi-process” in providing conventional (sheetfed or web) integrated with digital (toner based/inkjet) and various ancillary services as a “one stop” shop that can match the technology to the job and combine multiple technologies in the same job.

·They will be “solutions providers” and “marketing service organizations” that focus on higher-end value-added products and services and market both deeper and higher in their customer’s organization.

·Within their operation they will be continually focused on cost control, productivity improvement, and “green.”

·Many may change their names to emphasize these new realities (ABC Litho to ABC Graphic Solutions).

·Many may merge with or acquire other printers or ancillary service providers or otherwise change their firm structure to better compete in this new environment.

·In total, the evolving, adapting printing firms will exhibit the keys to success of many of today’s industry profit leaders with a “specialized diversification”strategy as they specialize in particular print market segments while diversifying in to more value-added ancillary services and printing processes.

The above environment will also provide challenges—yet significant opportunities—for industry suppliers. The continued large economic footprint means that the market for industry consumables, equipment, and services will remain large. Also, the challenges facing printers will translate to growing demand for suppliers that can provide their solutions to help printers lower cost, increase productivity, add process and job flexibility, and improve environmental performance in all workflow areas—prepress, press, and postpress.